Political connections and firm value: an analysis of listed firms in Sri Lanka

2016 ◽  
Vol 28 (1) ◽  
pp. 92-106 ◽  
Author(s):  
Henk Berkman ◽  
Vidura Galpoththage
Keyword(s):  
Sri Lanka ◽  
Firm Value ◽  
Public Perception ◽  
Convincing Evidence ◽  
Political Connections ◽  
Political Connection ◽  
Content Type ◽  
Political Events ◽  
The Government ◽  
The Impact

Purpose – The purpose of this study is to use a portfolio-time-series approach to examine the impact of five important political events on the value of politically connected firms in Sri Lanka. Design/methodology/approach – This study examines five major political events to test if political connections affect market value of listed companies in Sri Lanka. Results show that despite numerous news articles and public perception suggesting otherwise, there is no convincing evidence which indicate that political connections increase firm value in Sri Lanka. Findings – The empirical results provide no evidence that political connections increase firm value in Sri Lanka. Further tests indicate that the government is not biased towards politically connected firms when granting major projects. The authors also fail to find a relation between Tobin’s Q and the level of political connection after including several common control variables. Originality/value – This study contributes to the literature on the value of political connections by using a robust event study methodology and a novel setting: Sri Lanka in the period around the end of the civil war.

scholarly journals Too much reciprocity?

2020 ◽  
Vol 14 (2) ◽  
pp. 473-491
Author(s):  
Zhe Sun ◽  
Qi Ai
Keyword(s):  
Social Exchange ◽  
Social Exchange Theory ◽  
Emerging Market ◽  
Chief Executive ◽  
Political Connections ◽  
Political Connection ◽  
Content Type ◽  
Chinese Multinationals ◽  
The Government ◽  
The Impact

Purpose Using the evidence of Chinese outbound mergers and acquisitions (M&As) enacted between 2006 and 2014, this study aims to investigate the role played by home political connections on the cost implications of Chinese multinationals. It also examines whether home political connections – at different levels and of different configurations – impact the operational cost of Chinese multinationals. Design/methodology/approach The data were analysed using a multivariate regression model. To examine their heterogeneous effect on Chinese multinationals, the political connection data were further split into higher and lower level political connections and in chief executive officer (CEO) and chairperson political connections. Findings This study implies the negative effect of home political connections on the internationalisation of Chinese multinationals. At the same time, the impact of lower-level political connections is stronger than that of their higher-level counterparts. Moreover, CEO political connections have a stronger effect on the operational costs of Chinese multinationals than their Chairperson equivalents. Originality/value By unravelling the “black box” of Chinese internationalisation from the social exchange perspective, through the informal political connection networking ties between Chinese firms and the government, this study advances emerging market multinational theory, contributes to the understanding of the heterogeneous nature of political connections and sheds new light on social exchange theory from the perspective of the emerging phenomenon of Chinese internationalisation.

Are independent directors’ political connections valuable?

2020 ◽  
Vol 11 (2) ◽  
pp. 299-315 ◽  
Author(s):  
Yanyu Chen ◽  
Wenzhe Zheng ◽  
Yimiao Huang
Keyword(s):  
Firm Value ◽  
Negative Impact ◽  
Listed Companies ◽  
Political Connections ◽  
Independent Directors ◽  
The Political ◽  
Political Connection ◽  
Exogenous Shock ◽  
Content Type ◽  
Negative Effect

Purpose The purpose of this paper is to use difference-in-difference method (DID) to study the influences of independent directors’ political connection on firm value. Design/methodology/approach File No. 18 by the Organization Department of the Communist Party of China Central Committee requires that the leading cadres in party and government offices are not allowed to act as independent directors; this restriction applies to retired officials as well. As a result, many listed companies lose the political connections of officers as independent directors. This paper takes it as an exogenous shock to evaluate the influence of the political connection of independent directors on firm value, effectively alleviating the endogeneity problem existing in previous studies. Findings The research finds the following: under the policy of compelled resignation, the loss of political connection of independent directors has a prominent negative impact on firm value; and compared to state-owned enterprises, the firm value of private enterprises receives a greater negative impact. However, the political advantage of state-owned enterprises is not obviously influenced. In the regions with worse external market environments, due to a greater reliance on resources brought about by political connection, the policy has a much greater influence on their listed companies. Research limitations/implications The study faces several limitations, each of which represents a potential research direction. First, our analysis is based on the policy effects on the firm’s current Tobin’s Q and finds a negative effect of losing political connections. However, the long-term effects are still unclear, as some studies find a negative effect of political connections. Second, the paper focuses on one channel in which political connections may affect firm value. Other channels, such as subsidies and loans from state-owned banks, which need more granular data, should be explored in the future. Practical implications The use of DID model can better objectively evaluate the implementation effects of ban policies and alleviate endogenous problems, which is also enlightening for further perfection of the system of independent directors in the A-share market. Social implications It enriches existing researches of the value of independent directors from the perspective of political connection, which is conducive to understanding the influence and channel on the firm value after the loss of political connection and the value of independent directors in the corporate governance in a more comprehensive and accurate manner. Originality/value This paper extends the relevant research on the value of the political connection of independent directors from the perspective of political connection and enlightens the evaluation of the effect of ban policies.

Institutional environment, political connections of partial state ownership, and performance

2016 ◽  
Vol 43 (8) ◽  
pp. 856-870 ◽  
Author(s):  
Zengji Song ◽  
Abraham Nahm ◽  
Jun Yang
Keyword(s):  
Institutional Environment ◽  
State Ownership ◽  
Economic Consequences ◽  
Political Connections ◽  
Political Connection ◽  
Data Set ◽  
Content Type ◽  
Partial State ◽  
The Government ◽  
And Performance

Purpose – The purpose of this paper is to examine whether substantial differences in institutional environment in China lead to different levels of demand for political connection. Design/methodology/approach – Using a data set of 296 listed private sector enterprises (PSEs) in China, the authors empirically investigate the effects of institutional environmental factors upon political connection. Findings – The authors find that the lower the level of regional property right protection, the more powerful the government intervention, and the slower the economic development, the more motivated the PSEs were to build relationship with the government via partial state ownership. However, the degree of local corruption was not correlated with the demand for political connection. The authors also find that partial state ownership in PSEs exerted a positive effect on performance. Originality/value – Deviating from previous literature that has been mostly concerned about the economic consequences to firms caused by political connections, this paper examines the reasons for political connection among Chinese PSEs. The authors introduce a new dimension of political connection, namely, partial state ownership in PSEs.

Political connections, media impact and state-owned enterprises: an empirical analysis on corporate financial performance

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alessandro Giosi ◽  
Marco Caiffa
Keyword(s):  
Stock Prices ◽  
Boards Of Directors ◽  
Institutional Environment ◽  
Political Connections ◽  
Theory Approach ◽  
Political Connection ◽  
Content Type ◽  
Political Role ◽  
Political Roles ◽  
The Impact

PurposeThe purpose of this study is to assess the differential impact on the stock market of statements made by and information about directors and companies who are politically connected, compared to directors and companies with no political connections. The authors also analyze the role played by state-owned enterprises (SOEs), which the authors have identified as politically connected companies because most board members are appointed by political authorities. Furthermore, the boundaries and institutional environment within which SOEs operate are likely to be different from private companies.Design/methodology/approachThe sample is composed of over 60,000 news articles on the boards of directors (both with political roles and without political roles) of listed Italian companies in the period 1998–2013. On that sample the authors run a regression analysis under the signaling theory approach.FindingsResults suggest a positive effect on market capitalization associated with individual political connections. This effect decreases when the political connection extends to the whole enterprise although it still remains, while a negative effect is associated with state-controlled enterprises. The impact of negative news content does not change depending on whether a board member has a political role or not.Originality/valuePrevious research has demonstrated a causal link between stock prices and their reaction to corporate news (Engelberg and Parsons, 2011; Peress, 2014), but no studies have quantified the different reactions that occur when the news mentions politically connected companies and individuals who hold a political role.

Would diversified corporate boards add value? The case of banking institutions in Malaysia

2018 ◽  
Vol 10 (2/3) ◽  
pp. 218-228 ◽  
Author(s):  
Ribed Vianneca W. Jubilee ◽  
Roy W.L. Khong ◽  
Woan Ting Hung
Keyword(s):  
Firm Value ◽  
Banking Sector ◽  
Gender Diversity ◽  
Governance Structure ◽  
Corporate Boards ◽  
Board Diversity ◽  
Content Type ◽  
Banking Institutions ◽  
The Government ◽  
The Impact

Purpose Board diversity has gained increasing attention and has been widely posited as a driver for firm value. The purpose of this paper is to provide empirical evidence on the relation of gender diversity of corporate boards with the value of banking institutions in Malaysia. Design/methodology/approach The sample comprised of ten banking institutions listed on Bursa Malaysia with data observations from 2007 to 2016. Panel data techniques were employed to investigate the relationship between having female directors and firm performance in terms of values generated as indicated by Tobin’s Q. Findings The results revealed a positive relationship between the proportion of female director and the value of the bank. Interestingly, this study found that appointment of female independent directors tends to be negatively related to the value of such institutions. Practical implications There remains a shortage of research studying the impact of gender equality on corporate boards in Malaysia generally and in the banking sector specifically. Thus, this study contributes a significant knowledge on the value implication of board diversity. The findings also provide useful insights on the developmental policy initiated by the government to increase female participation in the top management. Originality/value This study contributes to the literature by bridging the knowledge gap on board diversity in the governance structure of banking institutions. It also provides theoretical contributions to the development of regulatory policy in relation to gender diversification in corporate leadership.

The impact of political connection and risk committee on corporate financial performance: evidence from financial firms in Malaysia

2020 ◽  
Vol 20 (7) ◽  
pp. 1281-1305
Author(s):  
Redhwan Aldhamari ◽  
Mohamad Naimi Mohamad Nor ◽  
Mourad Boudiab ◽  
Abdulsalam Mas'ud
Keyword(s):  
Negative Impact ◽  
Market Performance ◽  
Political Connection ◽  
Close Link ◽  
Content Type ◽  
Financial Firms ◽  
Principle Components Analysis ◽  
Risk Committee ◽  
The Government ◽  
The Impact

Purpose This study aims to examine the association between the effectiveness of risk committee (RC) and firms’ performance in Malaysian context. It also explores whether political connection has an impact on the relationship. Design/methodology/approach This study, using a principle components analysis, derives a factor score for RC attributes to proxy the effectiveness of RC. It also uses both accounting and market performance to measure the company performance. Findings Using a sample of financial firms from 2004 to 2018, this study finds that both accounting and market performance are higher for firms with an effective RC. It also finds that the effectiveness of RC in monitoring and management of risks is more pronounced for politically connected firms (PCFs). In further tests, the paper finds that RC attributes (i.e. RC independence, qualification and gender) are positively and significantly associated with accounting performance, while those of RC existence and overlap are positively and significantly related to market performance. The study also finds that RC size (RC diligence) has a positive (negative) impact on financial firms accounting and market performance. The further analysis also shows that PCFs with a separate as well as larger RCs experience both higher accounting and market performance. This study’s results are robust for concerns of endogeneity. Practical implications The findings of this study resolve the ongoing debates surrounding political connection by suggesting financial firms not to have politically connected board members as doing so may deteriorate their performance. This study’s results are also useful for investors, regulators and policymakers. Originality/value To the best of the authors’ knowledge, this study, for the first time, introduces on the interaction term between the effectiveness of RCs and political connection to empirically explore how an effective RC may reduce the potential risk of political ties. As such, this study adds to the literature and sheds light on an aspect of risk (i.e. risk stems from establishing close link with the government) that is growing in importance.

Impact of ownership types and political connection on private equity placement

2017 ◽  
Vol 8 (4) ◽  
pp. 390-403 ◽  
Author(s):  
Gaoliang Tian ◽  
Yi Si ◽  
M.M Fonseka
Keyword(s):  
Private Equity ◽  
Political Connections ◽  
Private Firms ◽  
Political Connection ◽  
Content Type ◽  
Test Hypothesis ◽  
Listed Firms ◽  
Ultimate Ownership ◽  
The Impact ◽  
Ownership Types

Purpose In China, private equity placement (PEP) has become the most important equity refinancing method because most listed firms issue new stocks in this method. However, previous literature has not paid much attention to the impact of political connections on PEP. In this paper, the authors aim to focus on the effect of ultimate ownership types and political connections on approval, approval time, approval results and proceeds of PEP. Besides that the authors also explore the influence of different types and levels of political connections on PEP. Design/methodology/approach This study investigates the impact of ultimate ownership and political connections of private firms on the approval of PEPs. The authors obtain a final sample of 1,651 private placement events of Chinese-listed firms. To test the hypothesis that the authors developed in this paper, the authors use empirical models from the existing literature about political connections and corporate finance. They establish multiple linear regressions to test Hypothesis 1 and 3 and introduce a logit model to test Hypothesis 2. Findings First, this study documents that state-owned firms have significant advantages over private firms in approval procedure. Second, political connections seem to help private firms obtain approval of placements from China Securities Regulatory Commission. Third, political connections through government officers are not useful for firms to obtain refinance resources, whereas the connections of being members of Chinese People’s Political Consultative Conference and People’s Congress are the two valuable types of political connections to help private firms obtain approval. Originality/value This paper has three main contributions to the previous literature. The first contribution is to provide an evidence for the relation between political connections and PEP approval procedures. The second contribution is to provide a comparison between government officer’s connection and social title’s connection. The third contribution of this paper is to reveal the influence of non-disclosed political connection on PEP approval. All the three contributions are important for understanding the relation between political connections and firm refinancial policy.

scholarly journals Regional Anti-Corruption and CSR Disclosure in a Transition Economy: The Contingent Effects of Ownership and Political Connection

2019 ◽  
Vol 11 (9) ◽  
pp. 2499 ◽  
Author(s):  
Shiwei Xu ◽  
Mingzhe Qiao ◽  
Bin Che ◽  
Peng Tong
Keyword(s):  
Transition Economy ◽  
Market Competition ◽  
Organizational Legitimacy ◽  
Political Connections ◽  
Political Connection ◽  
Socially Responsible ◽  
The Government ◽  
Csr Disclosure ◽  
The Impact ◽  
Positive Effect

Based on the empirical data of China’s Shanghai and Shenzhen A-share market, this paper examined the impact of regional anti-corruption intensity on corporate social responsibility (CSR) disclosure. The results indicate that (1) regional anti-corruption intensity has a significant positive effect on firms’ CSR disclosure; (2) through the grouping test based on the ownership of firms, it was found that the positive effect of anti-corruption intensity on CSR disclosure in the sample of non-state-owned enterprises was more significant and positive than that of state-owned enterprises (SOEs); and (3) through the grouping test of whether or not the enterprises had political connections, the positive effect of regional anti-corruption intensity on CSR disclosure was stronger and more significant in firms with political connections (relative to those with no or weak political connections). This paper sheds light on the research into anti-corruption policies by linking government macro policy and enterprises’ micro social economic behaviors, and it provides empirical evidence for this linkage. This paper also contributes to organizational legitimacy theory and CSR theory by probing the impact of anti-corruption policies on firms’ CSR disclosure. At the same time, the effects of two contingency factors (ownership and political connection) also provide some practical implications to the relevant government departments by: (1) speeding up the market-oriented reform of state-owned enterprises including clarifying the boundaries of authority and responsibility between SOEs and the government, and conducting the de-administration of managers of SOEs; and (2) encouraging firms to focus on market competition and be more socially responsible, instead of speculating with political rents.

Does board independence enhance firm value of state-owned enterprises? Evidence from India and China

2020 ◽  
Vol 32 (5) ◽  
pp. 785-800 ◽  
Author(s):  
Thenmozhi M. ◽  
Aghila Sasidharan
Keyword(s):  
Firm Value ◽  
Central Government ◽  
Stock Exchange ◽  
Board Independence ◽  
Governance Mechanism ◽  
Minority Shareholders ◽  
Content Type ◽  
The Government ◽  
The Impact ◽  
India And China

Purpose This study aims to examine the effectiveness of governance in state-owned enterprises (SOEs) and explores if board independence enhances the firm value of SOEs in India and China. The study further explores the moderation impact of promoter ownership in enhancing firm value. Design/methodology/approach The study is confined to government-owned enterprises in India and China and is based on a sample of 53 central government-owned firms listed in National Stock Exchange of India and 110 state-owned firms listed in Shanghai Stock Exchange of China for the period 2010–2017. A fixed-effect panel regression analysis has been used to examine the effect of board independence on firm value. Findings The study found that board independence adds value to the SOEs in India and China and the presence of independent directors (IDs) in the board of SOEs act as better monitors of performance to protect the interest of minority shareholders. Probably, they minimize agency conflict and provide resources to the firm and management. The greater the government shareholdings, the board independence further enhances value of SOEs in India and China. Practical implications Compliance with guidelines on IDs in SOEs serves as an effective corporate governance mechanism and the presence of IDs can signal better firm performance. The government promoters align with the IDs in better monitoring of SOE performance. Originality/value The study is unique and contributes to the literature by examining the impact of board independence on firm value in the context of SOEs in India and China and also provides insight on the effect of promoter ownership on the effectiveness on board independence.

Market response towards different types of politically connected firms during political events: evidence from Malaysia

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Wai-Yan Wong ◽  
Chee-Wooi Hooy
Keyword(s):  
Asset Allocation ◽  
Market Response ◽  
Political Connection ◽  
Content Type ◽  
Political Events ◽  
Different Types ◽  
Short Run ◽  
Government Leader ◽  
The Government ◽  
Practical Implications

PurposeThis paper investigates the market responses towards four types of politically connected (PCON) firms during two political events – general election and change of leader in Malaysia.Design/methodology/approachThe authors capture the market response using cumulative abnormal return and further test it using regression analysis. The authors use a sample of 376 politically connected (PCON) and non-politically connected (non-PCON) firms from 2002 to 2013.FindingsThe market reacted negatively towards government-linked companies (GLC) during both events, showing that GLCs are negatively perceived by the market during political instability. On the other hand, the reaction of the market towards firms connected by businessmen does not differ from other firms. When compared to the findings of past literature, it shows the decreasing influence that businessmen have over the government leader. In further analysis, this study finds firms that are connected to the incoming government leader recorded a higher CAR as compared to firms connected to the outgoing government leader.Practical implicationsThe authors’ study offers several practical implications. Knowing how the market responds to the different types of political connections might prove beneficial to investors. With this information, investors can recognize stocks with potential returns before the event date and may consider buying or selling them to capture a short-term profit. The authors’ findings may also have important implications for the management of PCON firms in terms of implementing an effective risk management and asset allocation plan to safeguard their value during political events that may disrupt the stability of their firms.Originality/valueThis paper provides an insight on how the markets have a different perception towards different types of politically connected firms during short-run political events. Past studies usually categorize political connection into a single category. With this separation, the authors are able to see how their individual CAR differs from other types of PCON.

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